Tesla Set To Win Big As China Slashes Car Import Tariffs

Amid easing of tensions in the U.S.-China trade dispute, China is slashing its import tariffs on cars and car parts from July 1 in what could be a boon to auto manufacturers without local production such as electric vehicle maker Tesla.

China will cut import duties on most passenger vehicles to 15 percent from 25 percent effective July 1, in a bid to open up China’s market, boosting competition and bolstering the local car sector, the Chinese Finance Ministry said in a statement on Tuesday, as carried by Reuters.

Import tariffs on car parts will be reduced to 6 percent from around 10 percent currently, according to the finance ministry.

Analysts see the Chinese car import duty cuts as a sales boost for Tesla and for German luxury brands such as BMW, Porsche, and Daimler’s Mercedes-Benz.

While many mass-market brands have production in China in joint ventures with local partners, the German luxury carmakers mostly export their automobiles to China, and Tesla also ships U.S.-made EVs to the Chinese market. Without local production, Tesla has been facing stiffer competition in pricing from China’s domestic EV manufacturers.

A couple of months ago, when the U.S. and China appeared to be on the brink of a trade war, Elon Musk took to Twitter to complain to U.S. President Donald Trump about the unfair trade rules on U.S. car sales in China, which make Tesla’s cars much more expensive in the world’s fastest-growing EV market.

“To be clear, I think a fair outcome for all is quite likely. China has already shown a willingness to open their markets and I believe they will do the right thing,” Musk said back then.

In addition to lower Chinese import tariffs, Tesla could be a big winner of the Chinese plan to remove a limit on foreign ownership of carmaking joint ventures. China—which has been limiting foreign carmakers to owning no more than 50 percent of any local joint venture—plans to lift the foreign ownership cap for EVs and plug-in hybrid car manufacturers as early as this year.

It is a win-win situation for oil, global trade, German luxury carmakers and Tesla.

China’s oil imports which are already projected to range between 10-11 million barrels a day (mbd) this year will get an added boost as a result of the reduction of Chinese tariffs and this will in turn boost oil prices.

German luxury carmakers who mostly export their automobiles to China will benefit as well as Tesla. But Tesla’s benefits from exporting its electric vehicles (EVs) to China will be limited because its EV manufacturing capacity is still very small and its EVs will face very tough competition from China’s locally-manufactured EVs. It is possible that Tesla may eventually decide to build its EVs in China if the Chinese go ahead with a plan to lift the foreign ownership cap of 50% for EVs and plug-in hybrid car manufacturers by the end of this year.

But the real winner is free trade and a lessening of prospects of a trade war between the United States and China.

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